If General Motors was forced into Chapter 11 bankruptcy, the US government could have to lend it about US$30bn to help it through or risk a series of failures in the auto industry, a leading bank has said.
The bank calculated the $30bn as twice GM’s working capital plus another $10bn for further earnings hits and to fund suppliers, the report said.
The bank reckons the government would need to lend funds to support the company in bankruptcy rather than out of bankruptcy, as that was the only way to ensure the government had the most senior claim on the automaker’s assets, the news agency said.
Bank of America suggested money from the Troubled Asset Relief Program, or TARP, could be combined with funds from section 13 of the Federal Reserve Act, which allows the Fed to lend to companies on a secured basis under “unusual and exigent conditions”, Reuters added.
Bank of America said a GM failure could drag suppliers and others down in a systemic failure”, according to the report.